First of all, there is a need to restore investor’s confidence. Our policies should complement investors’ expectations. Investors want two things: stability and long-term direction in sectoral policies like the energy sector and stability in the government’s tax policy. Rapid changes in tax policy hurt investors’ confidence.
They also want to see continuity in the incentives the government offers for the promotion of industries and exports. Such incentives should not be withdrawn in the middle of the year due to other pressures in the economy.
Investors also have a keen interest in the timely development of the special economic zones (SEZs) and the related infrastructure so that they can invest in these SEZs.
The good thing is that the proposed changes in the tax policy are likely to benefit the agriculture sector, exports, and small and medium enterprises (SMEs) to some extent.
If the government can ensure these three-four cross-sectional things, investors’ interest will be restored and as a result, the economic growth will revive. Some of the proposals in the finance bill are good but some of them need attention.
The good thing is that the proposed changes in the tax policy are likely to benefit the agriculture sector, exports, and small and medium enterprises (SMEs) to some extent.
A bit problematic issue though is that to implement good tax policies you need to reform the tax administration first. There are no tax reforms, particularly reforms in the FBR, in this mini-budget. I hope the PTI government introduces reforms in the tax administration when it presents its first full-year budget in June.
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There might be a shortfall of around PKR 7 billion [in tax collection] in the short term due to tax exemptions given to SMEs, agriculture sector and due to release of funds to exporters.
But the government assumes that the private sector will flourish due to tax exemptions and the resultant growth will lead to an increase in overall tax revenue. So they have adopted a long-term approach and whether it is successful or not remains to be seen.
Dr. Vaqar Ahmed is the Joint Executive Director at the Sustainable Development Policy Institute (SDPI). Earlier, he has served UNDP as Advisor, and has undertaken assignments with Asian Development Bank, World Bank, and Ministries of Finance, Planning and Commerce in Pakistan. Dr. Ahmed holds a PhD in Economics from National University of Ireland.
The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.